Actually existing capitalism

Posted
on September 25, 2010, 4:30 pm

Michael Norton (of Harvard Business School) and Dan Ariely (of Duke) have released results (pdf) from a series of experiments they did in 2005 on the subject of wealth inequality. They asked individuals in a nationally representative online panel to (1) estimate the current US distribution of wealth and (2) “build a better America” by describing what they thought would be the “ideal” wealth distribution.

The key findings:

First, respondents dramatically underestimated the current level of wealth inequality. Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.

This figure from the paper shows the actual distribution of wealth, respondents’ average estimate of the actual distribution, and their “ideal” distribution:

Source: Norton and Ariely.

In the actual distribution, the top fifth holds over 80 percent of all wealth. The average estimate of the holdings of the top fifth, however, was substantially lower: just under 60 percent. Even so, the average American thought that 60 percent of the wealth was too much for those at the top. The ideal allocation had the top fifth holding only a bit over 30 percent of all wealth.

Even those respondents who voted for George W. Bush (a separate graph, not shown) look like they’re far to the left of “actually existing capitalism.” On average, Bush voters estimated that the wealth share of the top fifth was close to, but not quite 60 percent. But, in an ideal world, Bush voters thought that the top fifth should only have about 35 percent of all wealth (for Kerry voters, it was about 30 percent).